The International Chamber of Commerce (ICC) updated its Incoterms rules to ‘Incoterms 2020’. These have been in effect since 1 January, 2020. 

Incoterms are a set of rules that can be understood by exporters and importers around the world. They outline who is responsible for each part of the shipping process, from the payment of duties and customs clearance, through to the delivery and unloading of goods.

A buyer and seller will typically agree which of the various Incoterms they wish to apply to a transaction, so each party knows the extent of their costs, risks and responsibilities. Here is an overview of the main changes that came into place in 2020.

Key Incoterms® Changes for 2020?

Part of the reason the ICC updated the previous Incoterms 2010 was to ensure the correct terms are being used by buyers and sellers. 

Some terms aren’t appropriate for certain modes of transport, such as containerised sea freight, so the ICC moved to clarify this in Incoterms 2020. There were also some other changes and adjustments that needed to be considered by exporters and importers from January 2020 onwards.

DAT is now DPU

Recognising that sellers or buyers don’t always want goods delivered to a terminal, the ICC updated DAT (Delivered at Terminal) to DPU (Delivered at Place Unloaded). This accounts for any transactions where the cargo is being delivered to another named location, which might be a warehouse, depot or somewhere else as agreed by both parties.

Insurance coverage

The ICC has amended the level of insurance that a seller is liable to pay for under CIF (Cost Insurance and Freight) and CIP (Carriage and Insurance Paid To). Incoterms 2010 stated that under both of these terms the seller was responsible for obtaining the minimum level of insurance cover, as per Clause C of the Institute Cargo Clauses. 

However, under the newly revised CIP, the seller is now required to purchase a higher level of cover, as outlined in Clause A of the Institute Cargo Clauses. CIF hasn’t changed under Incoterms 2020, but here at HGL we continue to offer “Clause A” cover for all containerised cargo, even if a request comes in as CIF.

Change of wording for FCA

Under FCA (Free Carrier), a seller is responsible for making the goods available for collection and loading them onto the vehicle for the buyer. 

This term can present difficulties when a letter of credit is being used for payment, and the goods are being loaded onto a vehicle hired by the buyer instead of directly on the international carrier. Banks often require the seller to present a bill of lading with an on-board notation before they can be paid; however, an international carrier will usually only provide a bill of lading when a seller presents goods to them directly. 

To address this, the ICC has tweaked the wording of FCA to say as follows: “If the parties have so agreed, the buyer must instruct the carrier to issue to the seller, at the buyer’s cost and risk, a transport document stating that the goods have been loaded (such as a bill of lading with an on board notation).”

Clarity on use of EXW

EXW (Ex Works) places maximum obligation on the buyer, with the seller only responsible for making the goods available for collection. This means the buyer has to load the goods – either at the seller’s premises or another named location agreed by both parties – as well as completing export documentation and clearance in the seller’s country. 

To prevent the buyer having to undertake export formalities, the ICC has advised that EWX be used for domestic trade only, while FCA (with the caveat of “seller’s premises”) should be used for international trade.

Terms for conventional sea freight only

The ICC also advised that FOB (Free on Board), CFR (Cost and Freight) and CIF (Carriage and Insurance Paid To) are to be used for conventional sea freight only, and should not be used for other modes of transport including containerised freight. 

To summarise, if goods are being delivered by anything other than conventional sea freight:

• CPT (Carriage Paid To) should replace CFR
• FCA Named Place should replace FOB
• CIP should replace CIF

Speak to HGL

If you’re confused by Incoterms, or simply need some advice on which term to use for your shipment, please don’t hesitate to get in touch with either Richard Davies. Alternatively, take a look at our glossary of Incoterms which also includes a graphic showing the risks and responsibilities for buyers and sellers.